Capitalising on the cotton crisis

Cotton prices have hit a 140-year high on the ICE futures in the US creating room for further price hikes across the polyester chain.

Prices of paraxylene (PX), purified terephthalic acid (PTA), monoethylene glycol (MEG) and polyester fibre and yarn have escalated sharply in the last few months as a supply crisis in cotton markets has spurred substitution demand for polyester. And supply constraints, especially for PX, have also helped.

“The entire changed scenario for PX, PTA and MEG is all because of the pull from polyester and that is due to cotton,” explained a major producer.

Cotton has already become expensive to the textile industry with prices steadily rising after floods in Pakistan in August damaged crops. And now a cold front is threatening to damage crop in China. This news was sufficient to push cotton futures to $1.25/lb on the ICE on Monday.

Pic source: CCTV

With no visible slowdown in textile demand experts expect cotton to rise further to even touch $1.30/lb which could fuel higher polyester prices.

But a cautionary note is also being heard.

“The situation could change in a year. Very high cotton prices could result in new acreage coming in,” said the producer.

And an industry analyst warned that the current high polyester margins would only result in producers ramping up output and then engaging in a price war to offload volumes.